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The Fundamentals of Salmon

Salmon It's been nearly a month since the news of Australian Ethical's divestment from Tassal, a Tasmanian-based salmon producer, was announced. Australia's largest ethically-conscious fund manager dropped their shares, nearly AUD $10m worth, and for the last few weeks both companies have seen regular slumps in their share prices. We wanted to find out what prompted Australian Ethical's controversial yet influential decision and what might we see going forward.

Looking back on the charts, Tassal has gone from strength to strength since the company listed in 2003, with their stock in an overall uptrend. Over the years, the company earned an environmentally-responsible reputation and were considered an industry leader in sustainable aquaculture. So until recently, Tassal sounded like the ideal investment - why then have Australian Ethical relinquished nearly 2% of issued capital? This is where we dig into the nitty-gritty.

Chart 1: Tassel

Aquaculture is widely considered key to meeting future food demands. However, a growing challenge is satisfying the hungry mouths of livestock while making sure the feed itself is sustainably sourced. Aquaculture, particularly salmon farming, has been in the spotlight recently for having a large environmental footprint thanks to the carnivorous diets of the stock. Traditionally, feed for farmed salmon comes from wild-caught fish, such as anchovies, and in Australia it typically takes 1.4kg of small fish to produce 1kg of salmon. The disproportional input versus output is a controversial topic, generating much debate on the industry's sustainability.

The problem is, while our population is growing, global fish catches are stagnating. We are essentially maxing out how much fish we can extract from the ocean, yet throwing a sizable proportion of it into producing salmon - a luxury item. Yet the salmon industry have taken big steps towards improving fish feed, and Tassal continue to reduce the amount of wild-caught fish they use, replacing much of the salmon diet with plant-based alternatives.

Nevertheless, Australian Ethical have stated concerns over the company's operations in various farms around the state, as well as the sustainability of their salmon feed. While the investment giant is known to be on the stricter end of the ethical investing spectrum, in the lead up to the divestment, there was additional mounting pressure from Environment Tasmania and the public. Once the announcement was made at the end of March, shareholders responded. Unsurprisingly, Tassal took a slight fall on the news.

Chart 2: Tassel

Interestingly, Australian Ethical dropped 4.35% from it's close price on March 31st of $92 to a close of $88 on April 3rd. Since then it has hovered around $89.

Chart 3: Australian Ethical

With all this back and forth, where does one invest? Is putting your eggs in aquaculture ill-fated, or was Australian Ethical too hasty? You may have already made up your mind, but before you give your broker a call, let us throw one last spanner into the works.

As the demand for farmed fish grows, there continue to be some very promising developments in the area of fish feed. From algae to insects, there is big money and big incentives in developing sustainable salmon diets that can still satisfy nutritional needs. While perhaps not the most glamorous topic, when it comes to the fundamentals, it's an industry to keep an eye on.

First Published: 21 April 2017 - Copyright © Electronic Information Solutions Pty Ltd

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